Problems on the Arctic Challenger has caused Shell to give up for the year on drilling for oil in the Arctic waters off Alaska.

PHILIP A. DWYER — Bellingham Herald/MCT

JUNEAU, Alaska — The Senate voted Wednesday night by the barest of margins to approve a massive tax cut for the oil industry in the hope that it would lead to more oil production in Alaska.

The vote on Senate Bill 21 was 11-9, with only Republicans supporting the measure. Two other Republicans, Gary Stevens of Kodiak and Bert Stedman of Sitka, joined the Senate's seven Democrats in voting against the bill. With rural areas so dependent on state spending, two Democrats with large rural constituencies who are otherwise part of the Republican majority caucus, Donny Olson of Golovin and Dennis Egan of Juneau, voted against the bill.

The vote showed that the 2012 election, where redistricting helped knock off three Democratic senators, played a decisive role in changing the outcome on oil taxes. An oil tax bill pushed by Gov. Sean Parnell failed to make it through the Senate last year.

The vote was taken at 8:59 p.m. after hours of impassioned debate rarely heard in the Alaska Legislature. But the outcome had been all but sealed once an 11-9 vote along identical lines approved an amendment earlier in the day to slightly increase the tax on industry. That brought in the main holdout, Sen. Click Bishop, R-Fairbanks.

A video recording by KTUU Channel 2 of the votes going up on the tally board shows Bishop casting the 11th vote in favor of the bill.

The bill will cost the state treasury billions of dollars over the next decade, but supporters say it will eventually lead to greater oil production. Opponents say it's nothing more than a giveaway to the industry, which told the Legislature it would reduce its efforts here if it didn't get tax breaks even as it told stock analysts the opposite.

The bill throws out the five-year-old tax system known as ACES, for Alaska's Clear and Equitable Share. It became law through a coalition of Democrats, Republicans and Gov. Sarah Palin -- in her populist phase -- as way to undo the previous pro-industry tax regime that passed in 2006 under a cloud of corruption.

The measure will come up for reconsideration Thursday. Opponents said after the vote that they will continue to talk to Bishop in hopes of getting him to change his mind and force a do-over with a different result. In a 10-10 tie, the bill fails.

Talk of tax rates, net profits and exclusions dissolved into an epic debate on the future of Alaska and the meaning of the "owner state" Wednesday as the Senate warmed up for the vote.

"This is a bad bill that should be voted down," said Sen. Hollis French, D-Anchorage. "It's a giveaway, it's a crapshoot, it's a far, far cry from our best work and what we're capable of doing. I've watched each committee negotiate against themselves, waiting for some positive word form the oil industry. The words never came. In fact it was just the opposite. The last hearing, when the bill was in Senate Finance, I listened to senator after senator try to get the industry to commit to making more investments in Alaska if this bill passed. They declined to commit -- ConocoPhillips, British Petroleum, Exxon Mobil."

Sen. Cathy Giessel followed, saying she wasn't a lawyer like French, "but I have something of tremendous value, and that is, the life experience of living in the Territory of Alaska as well as the State of Alaska, and I've watched this state move from a very small economy before oil to what we enjoy today." But Giessel asserted that the economy is declining along with oil production. "I'm interested in seeing that robust economy come back. Right now, what we're seeing is a continued decline while other producing sectors in our country are seeing an increase in production -- Texas, North Dakota, California. ... Right now, we're seeing folks move out of our state."

Stevens, who was Senate president last year when Parnell's bill died in the Senate, urged his fellow senators to be cautious about trusting the oil industry, given its history in the state: he cited three major events, the Amerada Hess court case in the 1970s where a judge ruled the industry cheated Alaska out of nearly $1 billion, the Exxon Valdez oil spill in 1989, and the Veco corruption scandal of 2006.

"Those three events are not the only abuses we have experienced -- they're just the three you cannot forget," Stevens said. "There is really no hurry to make a decision today, or really this session. It's better to get it right than do it quickly, with questions unanswered and with results unknown. This bill gives away too much to the major oil companies who are producing oil in the legacy fields at Prudhoe Bay and Kuparuk. Those fields seem to be doing just fine under the current tax policies and are enormously profitable to the industry. ... This body has decided to place enormous trust in an industry that has often proved itself to be untrustworthy. To believe the industry will indeed substantially increase oil throughput without a (sunset provision) if that does not happen, I appreciate your purity of heart."

"Let's kill this bill today, let's start from scratch," said Bill Wielechowski, D-Anchorage. Like several other opponents, he then referred to an interview in the Juneau Empire by a leading supporter of the bill, Sen. Kevin Meyer, R-Anchorage, who called the chances of more development "a crapshoot."

"I've heard this bill called a crapshoot," Wielechowski continued. "Is that we're down to, basing our public policy on a gamble, basing a bill that moves billions of dollars across the table to the oil industry, on a crapshoot? Basing our ability to fund teachers, troopers, VPSOs, roads, bridges, on a crapshoot? Basing the future of Alaska on a crapshoot? Is that what we're down to?"

"ACES doesn't work and something has to be done," said Sen. Pete Kelly, R-Fairbanks. "This bill does something, I think it does something very good. The biggest thing it does for me is it tells me we don't have to accept failure as our destiny. We don't have to have future of decline. I don't want to look my kids in the eye and say when I stepped out of high school in 1974, the world was my oyster. ... Sorry, to you, we spent it all and when we were faced with the tough decision of changes in things that maybe looked like we were in the pocket of the oil companies, we didn't have the guts to do the right thing so that you, my kids, and all your kids, so that you guys could have the same kind of future that we had. I just hope you'll all vote yes."

"One thing we know for sure," said Sen. Lesil McGuire, R-Anchorage, "is that a driver in investment is fiscal policy, and when we, as those that govern, have been told time and time again that our fiscal policy is not competitive and broken, it is absolutely incumbent upon us, as those that take that oath to the Constitution, to make every effort we can to change that tax policy in a way to encourage investment. ... I'm proud to be voting for Senate Bill 21 today -- it is not a haphazard, last-minute solution or anything that we're rushing into."

"I've taken a lot of votes over the years, and I've got to say that this is probably the most important vote that I'm going to be taking in my political career," said veteran legislator Lyman Hoffman, D-Bethel. "These are some of the highest stakes that we are addressing today -- which is the future direction that this state is going to take.

"My great grandfather came to Alaska in the 1850s. I state that because my grandchildren, when they lived in Bethel, were sixth-generation Bethelites, and I have to stand here today and justify my vote to them, and having heard the debate, the stakes are too high for us to go all in without some assurances that we are going to be able to provide services and protect the (Permanent Fund) dividend that the people of Alaska deserve, as the result of the profits that we've been able to get out of what our Constitution says is the maximum sustained benefit for the people of Alaska. I won't be able to look them in the face and say that's what I have accomplished if I am a yes vote. There is no way that I'd be able to do that, Mr. Speaker, and that is why I'm a no vote."

How they voted

Senate Bill 21, the overhaul of Alaska's oil and gas production taxes, passed 11-9 in the state Senate on Wednesday night. It faces a reconsideration vote Thursday before advancing to the House.

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